Social Impact Analysis for Business

by Bokani Tshidzu

Why businesses are looking to understand their social impact

Businesses have for some time been under pressure to measure and control their impact on the environment. The result has been regulation for the largest companies and efforts by small and medium enterprises to reduce negative impact on the environment. Social impact has usually been left as the preserve of CSR programmes through community donations and volunteering. With a small, but growing, number of investors showing an interest in social impact, beyond this narrow definition, companies are starting to make an effort to better understand their social impact. Companies are recognising that social factors pose significant risks to continued operations and present opportunities for their future business success. In the short-term social factors can cause delays to production through strikes and in the long-term lack of planning can lead to the skills shortages which can be seen in the energy sector. The VV-Good Index, which we recently launched, has a section on social impact and answered a demand to quantify the social impact of companies. More needs to be done in the sector and we identified the following areas in which social impact analysts can contribute their skills:

1. Improving current reporting on social impact:

Disclosure on social impact currently emphasizes the organisations effects on its staff and the metrics most frequently reported on are the following

Employee safety, for example through road accidents

Fair treatment and opportunity, through diversity policies

Human development e.g. through training provided to staff

Human rights, the policies that the company has to protect employees.

Companies tend to report on the policies that are in place rather than performance in these areas for example how many complaints of misconduct there are in each year or the number of breaches of human rights. Furthermore, an important indicator of fair treatment of employees such as paying a fair living wage is not usually disclosed by companies. Social impact analysts could contribute to better understanding on how to protect employees, get the most out of them and reward them.

2. Understanding the impact of companies on external stakeholders

The effects of companies on external stakeholders are not well reported and this may be because they are more challenging to measure and accurately quantify. For example the effects that companies have by employing miners and relocating them miles away from their families or the effects or influencing on local political processes. These effects may not be directly traceable to the companies in the same way that financial or environmental impacts can be, with careful monitoring they can be better understood and factored into decision making. This is where social impact reporting used by major charities could be particularly informative. Similar methodology used to assess the influence on communities by development charities may offer insight into how to capture impacts on the community.

3. Understanding the impact of products and services

Similarly, social impact analysts can contribute an improved understanding of the effects of the products and services of companies for example the health impacts of tobacco. This information could be valuable to regulators of these industries as well as the companies themselves.

So what are the next steps:

The current consultation by the International Integrated Reporting Council is an initial way in which social impact analysts can contribute to the debate. Working more closely with companies to contribute analysis will support the organisations to better understand the impacts they have and the vulnerabilities they face from negative impact.

It is clear that for companies the more quantitative the evidence the more persuasive. Applying this notion to social impact brings up the question of putting a financial value on the impacts. This is an ongoing debate and perhaps companies need to be reporting on impact before a conclusion on this can be reached. However, with increasing recognition that financial transactions do not accurately reflect the true cost of goods and services, there is an opportunity for social impact analysts to shine a light on the costs to society that are not, as yet, accounted for.

About Vertigo Ventures

Vertigo Ventures is a sustainability consultancy that helps organisations to simplify their impact reporting processes and improve performance across the triple bottom line of social, financial and environmental impact. Through helping with the transparent reporting of social, financial and environmental performance, Vertigo Ventures enables organisations to be more accountable for their impact. Using Impact Reports, Vertigo Ventures looks at an organisation’s performance and provides recommendations for improvements going forward. Impact Reports can be integrated into funding bids, annual reports and statements to stakeholders.

Vertigo Ventures has worked with leading academic institutions and corporations to develop the VV-Impact Metrics, an impact reporting framework, and a methodology for benchmarking projects and organisation through the VV-Good Index.